This might be my favorite personal finance topic. So buckle up. Here are three reasons to get a credit card for people who’ve never had one:
- Having a credit card builds credit-if you are worried about debt (most young people are) just put your Netflix or Hulu account on your card and set your bank account to pay it off automatically every month. Instant credit improvement.
- Buying things with a credit card protects your purchases much better than when you use a debit card-credit cards take time for a transaction to finalize and most credit cards offer you protection and returns as well. Consider the Citi Thank You Preferred Card which offers purchase protection for 90 days and no annual fee.
- Earn rewards points for every dollar you spend . . .since you are only spending what you would usually spend in a month anyway. If you already spend $1,000.00 a month in groceries, throw those purchases on the Amex Everyday Card and get double points at US supermarkets with 0 annual fee.
HUGE CAVEAT: only sign up for credit cards if you plan to pay off the balance every month in full. If you struggle with debt or overspending, getting a card that allows more debt and spending is never rational.
That being said, our community is always rational, so let’s carry on.
What is the best rewards travel card? The general consensus is the Chase Sapphire Preferred Card. In my opinion, the best travel rewards card is the card that allows you to take the vacation you want without spending an arm and a leg. If you plan on staying in a Hilton resort, get the Hilton Amex Surpass. If you plan on flying somewhere that Southwest services, get the Southwest Chase card. Plan you vacation BEFORE applying for a credit card.
Will applying for a credit card hurt your credit score?
Short answer, yes. Most credit card companies pull your credit scores when you apply and this will cause a slight ding to your credit score (usually a point or two). If you pay off your card every month, make sure to raise your credit limit, and keep your card for years, this initial ding to your credit score will turn into a huge jump in your credit rating. Here are the five factors that affect your credit score:
- having a past that shows you pay off your debts fairly quickly . . .aka making your payments in full every month
- maintaining low levels of indebtedness . . .aka not keeping huge balances on your credit cards*
- having a long credit history . . .aka the waiting game
- types of credit available . . .credit cards, mortgages, car loans, etc., and
- refraining from constantly applying for additional credit . . .aka avoid singing up for ten cards in one month
*never keep a balance month to month . . .imagine a credit card executive sitting in a fancy office space and laughing at you . . .this helps me
Should you churn cards? My short answer is NO. some people sign up for multiple credit cards and try to get initial sign up bonuses from multiple cards all at once. These people use manufactured spending to gain huge bonuses and travel all over the world. Sounds good, right? Since we are a rational blog, and this is a risky endeavor, I won’t recommend churning here. If you want to learn more about churning than you could possibly imagine, visit flyer talk forums and get lost in the world of travel rewards.
Ok what are the takeaways? You need a credit card. Pay off your credit cards. Use credit card rewards points to travel, but be wise. Stay rational.
B&T